Thursday, May 23, 2013

Before starting a nonprofit there are seven questions you
need to answer.

1. What or who will
the nonprofit help?

2. Why can my organization
do this better than existing organizations?

3. How much money will
we need, and how are we going to pay for it for the first one to three
years? (Because grant money simply won't be an
option at first).

4. Do you understand
the entire process of becoming an IRS-approved nonprofit, including the costs
and legal requirements? Private and governmental grant funds are typically simply not available to non-IRS
organizations, or to those that have not been in business long enough to
establish a track record of service delivery, sound financial accounting,
successful grassroots fundraising and accepted outcome measurements.

5. Will you have a
board of directors that is willing to commit dollars and hours to the start-up
phase? Most new nonprofits are initially funded by the board and/or a few
committed supporters.

6. Are you a team
builder? This isn't a one-person job. You MUST be able to form effective teams,
and be willing to eventually let them perform the bulk of the day-to-day tasks.

7. Are you a good
planner? If you are a shoot-from-the-hip
type that thinks planning is the most boring thing in the world, running a
nonprofit is not for you.

If
you can't answer these questions, save yourself the time, money and heartaches,
and join another organization as a volunteer, or a board member. Sit in on any
board meetings that are open to you. Help the organization with its fundraising
efforts. After a few years "in the field" you can better assess the
answers to the questions above. You will understand the pitfalls, the financing
problems, the legal ramifications, and the need for sound planning and be far
better qualified to start a successful nonprofit.

Friday, May 17, 2013

Unless you live on a distant planet, you have probably heard
about the Internal Revenue Service's improper targeting of nonprofit
applications that implied a conservative political leaning as the core mission.

Without repeating too many of the hackneyed phrases, there
is certainly truth in the phrase "The power to tax is the power to
destroy" originally attributed to Daniel Webster. This could be revised to
read "The power to selectively pick political winners and losers is the
power to destroy democracy".

It does not matter what side of the political fence you are
on, this selective process of holding 501(c)(x) applications in limbo and
requiring a depth and breadth of disclosure not allowed by the law to create interminable
delays should scare you.

By selectively holding up the ability of nonprofits to
disseminate information and fundraise for a particular political viewpoint, the
IRS may have had an effect on at least two elections, in 2010 and 2012. There
was constant speculation and commentary on why the Republican party seemed to
have a much less effective grassroots fundraising strategy than that of the
Democrats. Well, if there are fewer organizations available to influence public
thinking and fundraise for that political viewpoint, it could certainly have
contributed to that perceived shortcoming.

As a grant writer and nonprofit consultant, I am familiar
with the regulatory framework in which the IRS Office of Exempt Organizations
is supposed to operate within. I was
even marginally involved in the process, since I reviewed a nonprofit 1023 that
had been held up for fourteen months. I
remember thinking that the requests for information seemed out of place, but
ultimately, I felt that the way they were stating their mission and even
their name was not really representative of their actual goal. I had them reapply using different verbiage and
the application sailed right through (no, this wasn't the nonprofit that has
been on the news). At the time I just chalked it up to getting the presentation language of their mission, which was not political in any way, in line with
the actual goal, and forgot about it. Looking back, I certainly wonder if
something else was in play there.

There is no other agency in the government that is more viscerally feared than the tax collector. The potential power of that agency to intrude into your private life is virtually limitless. They can and do compel you to reveal things that you hold private and sacred. With great power comes great responsibility to balance and keep separate the necessary goal of fairly enforcing taxation and the collecting of taxes from the political process. It would seem that the IRS totally abrogated that responsibility on some or even all levels.

If the party in power can, by either overt or covert means,
stifle dissent and prevent discussion it can ultimately influence elections. That's
a dictatorship, and it isn't what we are about. That's why you should care.

Tuesday, May 14, 2013

"We just filed our 501(c)(3) paperwork and it was
rejected because we are not a corporation.
It costs at least $800.00 for us to register that way in our state. What
can we do?"

Short answer - form a nonprofit corporation in your state
and get it registered.

There are certain steps you HAVE to take to become a legal federally
recognized nonprofit. You need a board
of directors. You need a mission statement. You need bylaws that follow the laws of your state, and certain other
legal statements such as a nondiscrimination statement. You need a focus or
field that embraces the public good, not just a narrow personal or political focus
that does not serve a greater public good.

After you have put those essentials in place, then you have
to register and pay whatever fees your state requires to incorporate. If you
are not qualified to understand the legal aspects of both forming and running a
nonprofit, you need some sort of legal and financial guidance.

Once you have all of that in place, and you have received
your state notice of acceptance as a nonprofit corporation and filed for tax
exemption in the state THEN you can file the paperwork with the Internal
Revenue Service. That normally takes from 4 to 12 months to come through, and
you can NOT advertise any sort of tax deductibility for donations until you
receive it.

IMPORTANT: For the most part you will not considered for
grant funding for a minimum of one to three years so you
will need to put together a fundraising plan and a strategic plan or at least a
series of goals for fundraising. While
you are in that phase you need to have an accounting program and year-end financial
statements, because all grants require a financial history, budgets and audited
financial statements. It doesn't matter
if you have $1,000 in receipts or $100,000 - you have to be able to show your verified
revenues and expenditures to apply for grants. You must file a 990 (tax report) each year, even if it is the postcard format.

There are various types of corporate types that are accepted
by each state, and there is no universal rule that determines that, so check
with an attorney and/or accountant that specializes in nonprofits in your
state.

State law may determine how many members you must have at a
minimum. Some allow a single entity,
some require three or even more board members. Your bylaws will
need to include how often your board meets, as well as other common requirements. The board members are legally accountable
for any professional or financial malfeasance, so your nonprofit needs to have
errors and omissions insurance applicable to their roles. Your nonprofit board is also accountable for ensuring that the
officers and key employees do not commit illegal acts, and all of them need to
have a background check performed and kept on file.

There is a lot more to this nonprofit thing than many people
understand, and there are no shortcuts. If all of this sounds too expensive and
kind of scary, consider volunteering at other nonprofits until you can absorb
the knowledge and expertise needed to start and operate your own nonprofit. Failing
to understand and follow the process and account for all the costs is a waste
of your time and money.

Wednesday, May 8, 2013

"The University of South
Alabama in Mobile has announced a $50 million gift from local businessman and
philanthropist Abraham "Abe" Mitchell in support of its business
school and a new scholarship program.

There is a tendency among smaller nonprofits
confine their thinking to Facebook donors and grants. In reality, major gifts and bequests should
form a large slice of your funding plan.

Landing a gift like this is a matter
of relationship building. You can't just
get a list of the 50 richest people in your area and send them a generic
mailer.

One of the small nonprofit shortcomings
that I see constantly is a reluctance to get out there and actively form
alliances and use the power of face-to-face conversation. In today's wired
world this is still a necessary skill to promote awareness not just of your
mission, but of your needs. In business it is often referred to as networking.

One of your administrative focuses
should be the creation of a major gift strategy. One person should be
in charge of prospecting for events attended or sponsored by local philanthropists.
If you don't know who they are, go to
number of events, preferably somewhat related to your mission, but at least
that attract the so-called "moneyed" crowd. If there are
local museums, art galleries, zoos or colleges in your area, go to those
institutions and look to see who is on their wall of supporters, or search for
press releases related to funding they may have received. Check Facebook or Google
the supporters and look for press releases or articles that mention where they
may be spending their dollars. Look on
the websites of charities that have a related mission to yours. Many of them have a supporter page. Check the Board of Director lists for
local foundations. The information is
publicly available on many nonprofit-related websites that rate foundations or
compile information on them.

Once you have a target list of a dozen
or so prospects, attend functions they may be at, and have your 15-second elevator/introduction
speech ready (I'm pleased to meet
you. My name is Jane Doe and I represent
the charity, XXX, a nonprofit interested in helping Y") if you are introduced to them. Don't pounce on them like a starving hyena,
or immediately ask for a meeting or donation.
Just make small talk, comment on an exhibit, or even ask for their
opinion of something at the event.
People love to talk about themselves and their interests, so keep it on
that level at first. If you make them
feel good about themselves, they will feel good about you.

Some nonprofit staff may feel
inadequate or unprepared to attend gala events.
First, that is a skill that you learn, but if you really don't feel
comfortable in that situation, or feel that you can't present yourself adequately
see if a friend or volunteer would go with you to provide moral support. Just
circulate, enjoy the event and observe.
You will very quickly learn the ropes and then you can go forward with
your relationship building efforts. More informal gatherings such as community breakfasts or picnics are
generally something anyone can enjoy attending and feel comfortable in the
environment.

There is an old saying that goes
"It's not what you know, it's who you know". This is good advice for nonprofits, so get
out there and start finding people that will support and validate your mission.

Saturday, May 4, 2013

Weird title? It seems
that all nonprofits need money, all the time. Let me explain. I am often
approached by nonprofits that just can't seem to come up with a credible reason
for the ask. These are often either organizations receiving a major portion of
their funding from government funding or major gifts. They are unable to
present a program that is clearly an unfunded addition to their program lineup.

Take nonprofit A. They received a three-year Federal grant
focused on after-school care that literally financed the whole program, as
designed. It even paid for salaries and most of the overhead. They wanted to
secure private funding to continue the program after the Federal funds were
exhausted. They approached most of the major players in the early childhood development
field, but were repeatedly passed over for funding.

On the surface, their plan for program continuation seems
sound. They wanted to diversify their funding streams so that they wouldn't
have to shut the program down when the government grant ran out. The problem was
that they didn't have a need, in the eyes of prospective grantors. At an on-site
meeting with one of the foundations,
they kept having to answer the question, "what is our money going to fund
at this time?" Ultimately the grant was denied with a comment that
basically stated the title of this post. Their statement of need (program
continuation) was too far in the future to interest the foundation.

Nonprofit B received a major restricted bequest in the form
of both cash and stocks to support an environmental program to purchase land
for a wildlife habitat. After a period of time all the land available in the
nearby area had been purchased, but the reclamation costs and maintenance were
not covered by the bequest. When the NPO went back to the executors for
permission to modify the terms to use the money for those needs, it was denied
on the grounds that Granny wanted them to continue to purchase land, period. If
they couldn't use it for that, the funding would revert back to the heirs. The
NPO began to solicit funding to replace the bequest but again ran into the
problem that on paper they had all the money they needed, and more. Not wanting
to tick off the estate, they were not indicating that they would lose the
funding if they failed to use it to purchase land. The upshot of that was, most
prospective funders decided that they didn't need more money. This is a perfect
example of poor planning when accepting major gifts but that's a story for
another time.

The moral here is that you have to show an unmet need. Whether you are in the position
of having good funding at the present or you are a struggling start-up, if you
can't show a need, grantors are going to ignore you. Most funding supports a
program. If that program is already fully funded, you will probably be faced
with the unenviable task of creating either an adjunct program that is
unfunded, or having to shut down the original program when the current funding
runs out.

Many foundations operate on the principle that they want to
help by spreading the wealth over a wide variety of nonprofits. Most
foundations will not allow repeated grants to the same organization, and most
do not even offer short-term multi-year funding. That philosophy is what keeps
nonprofits in the never-ending cycle of chasing funds, and dooms many good
programs to failure. While I certainly would like to see the whole giving
philosophy change to provide long term sustainable funding to a few truly effective
organizations instead of spreading the wealth to many partially effective ones (and
I could write several thousand words on that subject, pro and con), the reality
is that if you can't show need, you aren't going to get funded. Your ongoing programs
must either identify a new area of concern, or expand into unfunded areas of
your original proposal.